Thursday, July 14, 2011

Chinese Threat

Dean Baker has a post on his Beat the Press blog that helps clarify the Chinese "threat":
China Threatens to Raise the Value of the Yuan

Yes, the United States has officially been asking (demanding?, begging?) China to raise the value of its currency against the dollar. Yet, the media continually threaten the country with the story that China may sour on the U.S. and stop buying U.S. debt if we don't get our budget deficit down.

However, if China stopped buying U.S. debt it would lead to a rise of the yuan against the dollar. This is exactly what the Obama administration has ostensibly been asking them to do.

In other words, China has no leverage in this picture. Their implicit threat is to do exactly what we supposedly want them to do. So why is the media trying to scare us?
This is a lot like a terrorist holding hostages saying "if you take another step I'll blow my brains out!" Under those circumstances, the best option is to take another step and let the terrorist finish himself off and thereby free the hostages.

What is funny -- and what Baker is pointing out -- is that "the media" is too incompetent to understand the story it is "reporting".

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